RFM stands for Recency, Frequency, and Monetary Value. The RFM model is used to segment customers based on their recent purchases (Recency), the frequency of their purchases (Frequency), and the value of their purchases (Monetary Value)—it’s useful to remember these terms clearly. It’s well-known that retaining customers is easier and cheaper than acquiring new ones. But how can you maximize the value of your current customers? You can do so with the help of the RFM model. In this blog, we’ll explain how you can apply it.
Psst: Want to learn more about the RFM model and how to conduct an analysis? Read the blog: Who are Your Red Alerts?
Starting from the Basics: Setting up RFM Groups
By segmenting your customers using the RFM model, you gain an overview of the size of each specific group. To give you an idea, you can categorize your customers into the following optional RFM groups:
- New Customers
- Low Potentials
- High Potentials
- VIPS
- Super VIPS
- One-Time Buyers
- Red Alerts / Red Alerts VIPS
- Sleepers / Sleepers VIPS
- Inactives
Not only can you now analyze each group individually (geographically, demographically), but you can also create a contact strategy for each group. Loyal customers, for example, expect different treatment than customers who have made only one purchase.
Determining Contact Strategies per RFM Group
When developing a contact strategy, there are various approaches you can consider. Below are suggestions for content strategies and communication tools tailored to different groups.
Triggered Emails
Using email is an effective way to target your customers strategically. Through the TritonX dashboard, you can set triggers that communicate daily with your ESP system. This way, you can use RFM groups to send these emails. For example, you can get to know your New Customers better by asking them about their style a month after their first purchase. This allows you to show items in future bulk emails that align with their selected style, increasing the chances of a second purchase.
You can also set a trigger to win back customers who are at risk of churning. For instance, set a trigger for anyone who has received an “One-Time Buyer” RFM score today. These customers made their first purchase a while ago but haven’t returned. You can incentivize them to make a second purchase by offering a coupon.
Do you have an active loyalty system? Your Red Alerts VIPS are valuable customers at risk of leaving. They likely have unused loyalty points, which they may be sensitive to. By setting a trigger for this RFM group and notifying them via email about the value of their remaining points, you greatly increase the chance of them returning as an active customer. If they don’t return after the points reminder, you can follow up with an automatic email offering them a chance to earn extra points or providing a coupon.
What resonates with customers can vary by business type. Do your customers respond to bonus loyalty points, receiving gifts or coupons, or does personalized contact work best? By conducting A/B testing, you can determine what delivers the best results for your business. You can also use the RFM groups for bulk emails, allowing you to analyze the results for each group.
Direct Mail (Postal Mail)
Although more and more marketing campaigns are moving online, direct mail is still an effective form of marketing. It feels more personal. For example, you can use Direct Mail to reach your (Super) VIPS to inform them about your new collection or invite them to a special VIP event. Your (Super) VIPS are your most loyal customers and should be treated with extra care. They contribute significantly to your revenue and, as such, have a major influence on Customer Lifetime Value (CLV).
On the other end of the customer spectrum, Direct Mail can also be used to reach customers you are at risk of losing. For instance, you can send your Red Alerts or Sleepers a discount voucher at the beginning of the new season to encourage them to shop with you again.
Targeted Campaigns via Google, Facebook, and Instagram
If you’re unable to reach certain profiles via email because they’ve unsubscribed, try targeting them through other online channels such as Google. The campaign opportunities within Google are vast. Using TritonX’s Social Connect module, you can easily send your RFM groups to Google and activate campaigns there (think look-a-likes), adjust bidding, or even exclude certain groups from campaigns. It’s also possible to use these groups for campaigns on Facebook and Instagram. Tailor your message to each group with the goal of engaging them and encouraging them to shop again.
Finally: Measure Your Results!
The ultimate goal of all these activities is to increase the average CLV. Set KPIs for each RFM group so you can measure whether the actions you’ve taken have been effective. The TritonX dashboard offers various ways to measure results. The best methods are based on group sizes and group flow.
Group Flow
For each RFM group, you can track the flow of that group within a selected period. How many profiles have been added to the group, and where do the profiles go once they leave the group? For example, how many One-Time Buyers have transitioned to Inactives, and more importantly, how many of these One-Time Buyers have you successfully activated as Low or High Potentials or even as VIPs? This allows you to see whether a campaign has had an impact on the group flow.
Comparing Group Size
In the dashboard, you can view the current group size for each RFM group, both in percentages and numbers. By comparing the group size to a different date, it’s easy to analyze whether specific actions have been effective in terms of group size and whether your goals have been met. This provides a comprehensive overview of your success.
Interested in the RFM model or want to brainstorm RFM possibilities for your company? Email us at support@tritonx.cloud.
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